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Is It Possible To Define Criteria For Net Zero Credibility For Financial Institutions?
SBTi’s document is the latest step in the process of creating a financial institution Net Zero (FINZ) standard to be released in 2024
The criteria outlined are ambitious in their coverage of financed and facilitated emissions, which are defined as “Category 15+”, referring to the GHG Protocol’s substantially narrower definition of financed emissions
It will remain challenging to develop a consistent framework for forward-looking Net Zero plans that incentivize investment in transition activities while avoiding easier but less meaningful ‘portfolio decarbonization’
As Regulators Take Stock On Transition Plans, Financial Institutions Should Begin Their Own Planning
The NGFS released a Phase 1 stock take of the use of transition plans for micro-prudential supervision and laying out next steps
Transition plans for non-financial companies are substantially different than what financial institutions will prepare, and most of the finance industry is underprepared as regulators begin to probe ways to use them
Regulators and supervisors will place particular emphasis on making sure less resourced financial institutions in emerging & developing markets are able to effectively plan their role in transition
New Guidance On Nature Targets Will Increase Finance For The ‘Blue Economy’
New guidance from the Science Based Targets Network provides companies with a framework for assessing their impact on nature and helps them set nature-related targets
Nature risk impacts half of all global economic activity, and the blue economy where the RFI Foundation’s Blue Finance Challenge is focused, has been particularly challenging for financial institutions
As financial institutions increase their focus on nature risk – including risks related to the ‘blue economy’ – they will rely on technology to provide tools to measure, manage and disclose risks as well as to improve their ability to offer innovative solutions like ‘blue finance’
Nature-Related Disclosures Will Widen Data Gaps In The Financial Sector That Technology Will Be Critical In Filling
The Task Force on Nature-related Financial Disclosures is taking final feedback ahead of a September 2023 release
Financial institutions already challenged by climate-related risks & disclosures will face an added burden to incorporate nature risks
Technology will play an important role in understanding, measuring and disclosing nature risks, a key rationale for the RFI’s Blue Finance Challenge
Emerging Market Banks Are Highly Vulnerable To Nature Risk
Financial institutions in emerging & developing markets have 45-55% of their financing assets exposed to at least one ecosystem service risk
Nature risks are often linked with climate risks, which has raised regulatory concerns about their impact on financial stability risks, as well as microprudential risks that banks should consider
Because nature risks are so embedded throughout global supply chains, they may attract capital to mitigate the risks that have been more limited in response to climate change, and banks will need to understand the sources of their nature & climate risks
FinTech Startups Need A Responsible Finance Strategy To Help Avoid Pitfalls As They Navigate ESG
Bain & Company and EcoVadis, as well as IBM, each released research finding operational performance benefit for companies with strong ESG characteristics
Evidence is growing outside of large, listed companies, including private companies, that ESG has operational benefits, but also comes with several barriers to adoption including when companies become overwhelmed by a magnitude of issues and revert to a ‘compliance’ mindset
RFI’s Responsible Finance FinTech Program can help FinTechs who are being pushed to focus on ESG issues get started in the right direction to avoid ESG becoming a distraction, and rather to make sure they see benefits by doing well on the right ESG issues